A One-on-One Interview with Scott Meyers About Expanding Into Self Storage.
For many investors who have spent the majority of their real estate careers fixing and flipping single-family residential properties, the idea of expanding their portfolio into a large commercial investment, such as a self-storage facility, can be both attractive and intimidating. Think Realty Magazine sat down with Scott Meyers, owner of Self Storage Investing, to talk about one of his projects in Macon, Georgia.
“This project is a perfect example of what is possible in self-storage because the project itself is not a slam dunk,” Meyers said. “The rehab was a little more difficult than we expected. The seller was a little more difficult than we expected. Our timeline was just a little longer than we expected, and it’s not going to be a home run but it is still going to be a solid triple. For investors who are wholesaling or flipping, this is the perfect case study to see what can happen if you decide to get into this side of the business and start doing deals with a few more zeros on the end.”
THINK REALTY MAGAZINE Sounds great! Let’s start at the beginning. Tell us a little bit about this property.
SCOTT MEYERS This is a relatively small storage facility, about 150 units, in Macon, Georgia. It’s a great case study because it is not a huge deal that required millions of dollars to acquire. The purchase price was right around $350,000, and we figured we would need an additional $100,000 to replace a lot of the doors, rehab an apartment on the premises to turn it into an office, and put a roof on one of the buildings. After doing all of that, we projected a sale price of about $700,000, but we always project low to be on the safe side.
The timeline on this project was about two years and, as I mentioned, we’re on the long side of that timeline at this point, but because our numbers were very conservative, we’re still in good shape.
TRM So will those improvements and repairs add that $350,000 in value?
SM Just like rehabbers and flippers, self-storage investors create value by adding square footage, improving curb appeal, and updating the property. In self-storage, adjusting marketing and management strategies can also force appreciation.
The improvements will certainly contribute, but that is not all we do when we invest in self-storage. Just like rehabbers and flippers do on their properties, we create value wherever we can by adding square footage when it’s an option, improving the curb appeal, and updating the property. We also throw in resolving management issues and doing really good marketing on the property to deal with vacancy issues and drive up the income.
In the case of this property, we made the purchase because we saw some good things happening in the local marketplace. That part of Macon has actually seen some decline in the past few years, but lately, there have been some plants opening up in the area. Also, it’s only 10 minutes from Warner-Robbins Air Force Base. The median income in the area is climbing, as is the number of households. That is always a good sign for storage, and most of the other facilities in the area are very nearly full. That means there will likely be increased demand for storage but not anyone able to meet the demand with current facilities.
We always do a “car count” on potential deals as well, and this facility has 26,000 cars per day passing by it. We like to have at least 10,000, so that is double our benchmark and then some. Given the owner did not even have a sign out front to indicate the presence of the facility, we felt like there would be ample opportunity to turn the property around through updating and marketing.
TRM You mentioned the seller was “a little difficult.” Can you tell us about that?
SM The manager that the owner had in place was an older gentleman who was not very tech savvy and barely answered the phone. Everyone in the facility was his friend, so if they were late on rent he never collected it or enforced the system of liens that self-storage owners can use to “evict” someone’s belongings if they do not pay. We are automating the system to help with rent collection, which is something you should always consider with self-storage because there are no tenants or toilets, which is to say there is very little maintenance, and most people are happy to automate their payments so they don’t have to think about their stuff once it’s moved in.
In this case, it just took a little longer than we expected to close the deal, probably in part because of the difficulty with reaching the manager, but it just gave us more insight into ways to improve the property. We will set things up so people can pay online, rent units online, and even use their mobile phones to manage the entire process.
TRM What kinds of things should an investor who is new to self-storage ask about a property before getting involved?
SM First of all, always consider going in with a larger investing group. Self-storage projects, even the small ones like this, are big compared to residential deals in most cases. Someone with a track record in self-storage will not only be able to help you evaluate a potential deal, but they probably will have good connections to get things done affordably and a series of benchmarks that will help you establish whether or not a facility is likely to provide a good rate of return on a timeline you are comfortable with.
As far as a few questions to ask yourself when you are first considering a deal, here are three of my favorites, although they are not the only three we ask by any stretch!
TRM Is the physical site easy to get into and out of?
SM If the facility is on a major road, that’s great. On the other hand, if it is located in an industrial part of town or in the middle of a corn field, people may be less inclined to want to store their stuff there. Lots of rooftops (residences) tend to mean lots of activity in an area, and that is a good sign.
TRM What types of businesses are nearby?
SM In most cases, facilities that are in the path of the daily family travels are the most successful, meaning facilities on the path between residential areas and schools, dining, groceries, or big-box shopping and retail. We have learned that typically the woman of the household rents the storage unit, and that is likely the reason these businesses are good signs for self-storage.
TRM Is local median income a good fit?
We like to see median income around $45,000 or more, and we generally do not want to be in a rural area because storage is a needs-based business and it is better to be in proximity to more people who may need your services. The best scenario is when we are in a highly populated area with a good median income and little competition, as is the case with the Macon facility where most of the competition was full and the need for storage was on the rise.
TRM Any final thoughts?
SM At the end of the day, one of the best things about self-storage investing is that there really is no “down market” in this sector as long as you buy based on local market indicators that show a facility is needed in the area. In fact, we do better in recessions than we do in boom time. The only industry that does better is alcohol! It is the best asset class in real estate to be in when you head into a recession, bar none.